I am Director of Entitlement and Budget Policy for the Heartland Institute, Senior Advisor for Entitlement Reform and Budget Policy at the National Tax Limitation Foundation, General Counsel for the American Civil Rights Union, and Senior Fellow at the National Center for Policy Analysis. I served in the White House Office of Policy Development under President Reagan, and as Associate Deputy Attorney General of the United States under President George H.W. Bush. I am a graduate of Harvard College and Harvard Law School, and the author most recently of America's Ticking Bankruptcy Bomb (New York: Harper Collins, 2011).
I write about new, cutting edge ideas regarding public policy, particularly concerning economics.

Reaganomics Vs. Obamanomics: Facts And Figures

In February 2009 I wrote an article for The Wall Street Journal entitled “Reaganomics v Obamanomics,” which argued that the emerging outlines of President Obama’s economic policies were following in close detail exactly the opposite of President Reagan’s economic policies. As a result, I predicted that Obamanomics would have the opposite results of Reaganomics. That prediction seems to be on track.

When President Reagan entered office in 1981, he faced actually much worse economic problems than President Obama faced in 2009. Three worsening recessions starting in 1969 were about to culminate in the worst of all in 1981-1982, with unemployment soaring into double digits at a peak of 10.8%. At the same time America suffered roaring double-digit inflation, with the CPI registering at 11.3% in 1979 and 13.5% in 1980 (25% in two years). The Washington establishment at the time argued that this inflation was now endemic to the American economy, and could not be stopped, at least not without a calamitous economic collapse.

All of the above was accompanied by double -igit interest rates, with the prime rate peaking at 21.5% in 1980. The poverty rate started increasing in 1978, eventually climbing by an astounding 33%, from 11.4% to 15.2%. A fall in real median family income that began in 1978 snowballed to a decline of almost 10% by 1982. In addition, from 1968 to 1982, the Dow Jones industrial average lost 70% of its real value, reflecting an overall collapse of stocks.

President Reagan campaigned on an explicitly articulated, four-point economic program to reverse this slow motion collapse of the American economy:

1. Cut tax ratesto restore incentives for economic growth, which was implemented first with a reduction in the top income tax rate of 70% down to 50%, and then a 25% across-the-board reduction in income tax rates for everyone. The 1986 tax reform then reduced tax rates further, leaving just two rates, 28% and 15%.

2. Spending reductions, including a $31 billion cut in spending in 1981, close to 5% of the federal budget then, or the equivalent of about $175 billion in spending cuts for the year today. In constant dollars, nondefense discretionary spending declined by 14.4% from 1981 to 1982, and by 16.8% from 1981 to 1983. Moreover, in constant dollars, this nondefense discretionary spending never returned to its 1981 level for the rest of Reagan’s two terms! Even with the Reagan defense buildup, which won the Cold War without firing a shot, total federal spending declined from a high of 23.5% of GDP in 1983 to 21.3% in 1988 and 21.2% in 1989. That’s a real reduction in the size of government relative to the economy of 10%.

4. Deregulation, which saved consumers an estimated $100 billion per year in lower prices. Reagan’s first executive order, in fact, eliminated price controls on oil and natural gas. Production soared, and aided by a strong dollar the price of oil declined by more than 50%.

These economic policies amounted to the most successful economic experiment in world history. The Reagan recovery started in official records in November 1982, and lasted 92 months without a recession until July 1990, when the tax increases of the 1990 budget deal killed it. This set a new record for the longest peacetime expansion ever, the previous high in peacetime being 58 months.

During this seven-year recovery, the economy grew by almost one-third, the equivalent of adding the entire economy of West Germany, the third-largest in the world at the time, to the U.S. economy. In 1984 alone real economic growth boomed by 6.8%, the highest in 50 years. Nearly 20 million new jobs were created during the recovery, increasing U.S. civilian employment by almost 20%. Unemployment fell to 5.3% by 1989.

The shocking rise in inflation during the Nixon and Carter years was reversed. Astoundingly, inflation from 1980 was reduced by more than half by 1982, to 6.2%. It was cut in half again for 1983, to 3.2%, never to be heard from again until recently. The contractionary, tight-money policies needed to kill this inflation inexorably created the steep recession of 1981 to 1982, which is why Reagan did not suffer politically catastrophic blame for that recession.

Real per-capita disposable income increased by 18% from 1982 to 1989, meaning the American standard of living increased by almost 20% in just seven years. The poverty rate declined every year from 1984 to 1989, dropping by one-sixth from its peak. The stock market more than tripled in value from 1980 to 1990, a larger increase than in any previous decade.

In The End of Prosperity, supply side guru Art Laffer and Wall Street Journal chief financial writer Steve Moore point out that this Reagan recovery grew into a 25-year boom, with just slight interruptions by shallow, short recessions in 1990 and 2001. They wrote:

We call this period, 1982-2007, the twenty-five year boom–the greatest period of wealth creation in the history of the planet. In 1980, the net worth–assets minus liabilities–of all U.S. households and business … was $25 trillion in today’s dollars. By 2007, … net worth was just shy of $57 trillion. Adjusting for inflation, more wealth was created in America in the twenty-five year boom than in the previous two hundred years.

What is so striking about Obamanomics is how it so doggedly pursues the opposite of every one of these planks of Reaganomics. Instead of reducing tax rates, President Obama is committed to raising the top tax rates of virtually every major federal tax. As already enacted into current law, in 2013 the top two income tax rates will rise by nearly 20%, counting as well Obama’s proposed deduction phase-outs.

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So, Regan did actually double the Federal Revenue by fixing the tax rates, right? Why does it still show in historical records for tax rates that 50% taxes is what remained in effect for most of Reaganomics? How is it that Reagan also spent tons more money with that doubled budget? Do you think the economic situation, Reagan starting office at … was it ~7% unemployment then having it increase to ~11%.. I am sure you mentioned the correct numbers (at least) here. How exactly do you attribute 25 years of economic boom all to Reagan? Why is it that most economists find that macroeconomics actually didn’t work? Was there really a depression when Regan entered office? Has Obama raised taxes at all in the period he has been in office? Then why has federal revenue been virtually flat? Do you have any real information other than a minor few figures to support your point, or will you admit that not only do you know zero, and probably are not an economist, that this is just a really long line of BS and, better stated, damaging misinformation. I am glad it is a year over now so that you really do look like an idiot.

Some more Reagan achievements: Slashed the budget for medical research at the National Institutes for Health. Thousands of research labs closed and Ph.Ds in biology fell and kept falling – only foreign students were left as there were no jobs for fresh PhDs. The Reagan belief that Government was bad and that the corporations were the innovative finders of miracle drugs failed miserably. Reagan set Cancer research back 10 years – we would have had medical treatments today years ago.

A second interesting fact about Reaganomics is how little it did for the 99%. 1980 is the point of inflection where America’s middle class started losing. The ENTIRE productivity gain of 70% in the last 30 years has gone to the top 10%. A big portion explained by skewed tax cuts.

The wealthy have all the money now – 10% now own 90% of the wealth, Bill Gates alone has more wealth than the 200 million Americans at the bottom. I guess what Walter Reuther said to Henry Ford has come true: if you lay off all the workers who is going to buy your cars?

Mr Ferrera with all due respect one only needs to read a book like METHLAND to understand the devastating effects of Reaganesque deregulation on the lives of Americans. On taxes for the rich lowered from 79% to 50% during his presidency one can rest the case for recinding the Bush tax cuts. More importantly wages have gone down for the many since Reagan and risen dramatically for the few. What was once a plethora of companies are now a few multinational global corporations having monopolies on most goods and services around the world. This isn’t capitalism it’s corporate oligarchy.

Exactly on target. These numbers have been available for more than 20 years yet people who hate Reagan continue to cite debunked, massaged opinion pieces like those from Krugman (who simply lies about Reagan’s record) because their political ideology prevents them from acknowledging anything the other “side” does.

This is very foolish. Reagan didn’t reject tax cuts because Kennedy embraced them. Today’s Democrats only do themselves harm by turning their backs on successful economic policies because Reagan (and the Republican Congress in the 1990s) get credit for them.

Reagan’s policies were far more successful than Obama’s have been. If Romney is smart he’ll point that out early and often.

If omission is lying then this article is really incomplete. First, Paul Volcker and the Federal Reserve created the economic calamity that lead to 10%+ unemployment. Second, President Carter had a growth economy and the economy that Reagan inherited was anywhere near the economy Barack Obama inherited. Carter did not have a financial collapse to deal with, there were no warning signs of a depression coming and there had not been 750,000 private sector job losses the month Reagan took office. Obama’s policies have NOT been implemented by Congress where Reagan got all of the policies that he wanted, all the budgets he wanted, all the deficits he wanted. No president other than the first black president has EVER had a Congress threaten to default on US debt. So, Mr. Ferrara, your basis point that Reagan had it worse or almost than Obama is just a lie. Please stop it. And FYI, Clinton had the best economic record of any American President or leader in the history of the world with the best peacetime growth (no expansion of the military like Reagan), surplus budgets, 5 soldiers lost to the enemy in 8 years and the highest approval rating of any president in history upon leaving office. Obama is being treated like the black guy by the Republican Party. So leave Obamanomics out of this article, we aren’t living under Obamanomics, we are living under Republican obstructionism since 2011. Mind you, corporate profits of American corporations were higher in 2010 than at anytime since 1966? I think we can safely say that Reagan had no such number and his policies set us on the road to today’s crushing debt. He is no hero!

Unser Reagan didn’t the Fed also reduce interest rates that spured economic growth and didn’t the deficit under Reagan almost triple in size? Also Obama has never really been able to implement his plan with the Senate filibustering almost every bill.

I would never allow you to balance my checkbook. After reading this dribble passed off as an article I have to wonder who in Forbes let you write this and call it journalism. By ANY standard of economic theory Reaganomics was a disaster. Reagen, for all his small government rhetoric, spent 22.4% of GDP. No predecessor since then has spent that amount. He took public debt under his tenure from 26% of GDP to 41% of GDP. His debt was more than every American President before him combined. We are still paying for this today. For all the right wing rhetoric about how the debt has increased under Obama the fact is that it has grown at a slower rate than his predecessor in this job. You have no business writing a word about economics, but, then yet, journalism ha lowered itself to pandering to groups who will subscribe not to the truth it should be reporting.

Well– your position that President Reagan cut spending— isn’t really true. Reagan spent like a lunitic during his first few years– remember– he called it “priming the pump” of the economic engine? Ran up colossal deficits that stuck around until the end of the Clinton era? Everyone on the left was screaming about how he was going to bankrupt the country? Any of this ring a bell?

I actually don’t think a spending bill when the economy is slow is a bad idea. It has benefits. It can lead to growth, as President Reagan showed us. As long as you’re smart enough to pay it back at some point (like President Clinton did).

Note– Presidents Clinton and Reagan have been the two most successful economic terms of the past sixty years.

These two couldn’t be more different in their approach to the economy. Translation: The same thing that worked then, might not work now. Also: There is more than one approach to economic success. And if you’re still seeing through blinders, ask yourself how President Clinton inverted all of President Reagan’s policies and still had record expansion over 8-years. No momentum set in place by President Reagan could have carried 8 years of the Clinton Presidency under entirely different policy.

Clinton had the benefit of a booming Wall Street. But he also managed the boom extremely well– and did smart things with the surplus he created. If you think it’s easy to do– ask his successor who failed miserably.

President Bush spent like a drunken sailor (necessary in some cases (9/11 and Katrina) not in others (prescription drugs and wars)) AND at the same time lowered taxes (inexcusable under those economic conditions). The results are obvious– you can do one, but not both.

I gave President Obama some slack when he entered office to see if his economic stimulus would work, as President Reagan’s did. It failed miserably– for very good reason– he targeted niche markets. Solar energy– Cash for Clunkers– programs that didn’t help the masses– and in some cases hurt the same poor folks he was trying to help in the first place.

President Obama, after campaigning on fiscal responsibility broke his promise with America, and we’re still suffering as a result. Note to the President– if you want to stimulate the economy– select broad industries which affect a lot of people.

This isn’t an endorsement of Mitt Romney, I don’t think he has the right answers either.

If you want to truly reinvent America, it’s going to start with broad, moderate spending bill (not anywhere near the trillion dollar disaster) and moderate tax increases so the deficit doesn’t skyrocket. Have a plan in place to balance the budget in short order, and begin paying down debt. Deregulation is a good thing– but with checks and balances so we don’t end up in another banking scandal.

In short, we need some common sense, that crosses both political territories. No one taking part in the fall election is that brave.